Taxpayers in dark on tax incentive scheme
March 29, 2006
RON JENKINS - Associated Press Writer
Oklahoma CITY - Oklahoma taxpayers may never know the names of the companies and individuals who got tens of millions of state dollars without necessarily creating any state jobs under a tax incentive program, officials said Tuesday.
The Oklahoma Tax Commission has estimated that the state treasury lost $66 million during the 2005 calendar year under a venture capital program for small businesses.
"The way the law is set up on many tax incentives, the companies are not public record unless that is specifically set out in the legislation. That is not the case with this incentive act," said Paula Ross, spokeswoman for the Tax Commission.
Details of abuse of the program were first reported by The Associated Press on March 8.
State Sen. Ted Fisher, D-Sapulpa, said the program "worked fine" the first several years it was in existence, creating jobs and costing the state about $2 million a year.
Fisher was a prime mover behind Oklahoma's Quality Jobs Act, a successful tax incentive program created in the 1990s and copied by several other states to attract high-paying jobs.
A spinoff program, designed to attract investors in small companies, led to unintended windfall profits for some investors who found a way to get around provisions that borrowed money not be used, Fisher said.
"Under the quality jobs act, we can give out the amount of money companies receive and the names of the companies that receive the incentive because it is set out as a public record in the statute," Ross said.
She said that was not the case in the spinoff program that now is the subject of controversy.
"Of course I was surprised," Fisher said of being informed that investors were making such large profits without the state realizing any economic benefit.
He said he sponsored the legislation "to attract investment in small businesses and in rural Oklahoma and it was working pretty much on an even keel until we found out that some very smart people had found a way to wire through it and, from my perspective, receive undue aggrandizement."
The Senate has passed a bill by Fisher that seeks to plug loopholes that permit investors to double their investment up front without creating jobs. He says the practice is not illegal under the law.
One thing Fisher said he wants put into the bill as it goes through the process is "full disclosure up front."
Rep. Odilia Dank, R-Oklahoma City, is the House author. She said the problem is just one example of legislators having to fix well-intentioned legislation that has gone awry.
"There's not enough accountability," Dank said. "With a lot of bills we pass, there are unintended consequences."
Under existing legislation, venture capital investors qualify for a tax credit of 20 percent for startup funding of small companies. In economically depressed rural areas, the tax credit is 30 percent.
Some investors have found a way to apply these credits to a larger pot of money than the funds strictly intended for business startups.
One official calls it "a shell game" where layers of companies are created with the same board of directors, who buy certificates of deposit that are combined with invested funds to make huge tax credit profits.
In one example, a group of investors could invest $15 million initially in five different small businesses, combine that $15 with an $85 million certificate of deposit bought by a second company they control and get a 30 percent tax credit on the combined total of $100 million. That would amount to a $30 million profit up front, twice the amount of the original investment.
Ed note: This reads like the Scissortail tax credit scheme.